BALANCING THE VALUE OF
INCREMENTAL PHARMACEUTICAL INNOVATIONS IN INDIA

Abstract:

The
WHO reported that 60% of essential life-saving drugs reflect incremental
innovations.Thus, there is a need
to encourage pharmaceutical companies to invest in such innovations, which is
done by most countries across the world by rewarding such innovations with
patent protection.India, however, has
taken a tougher stand in her recent Novartis
v. Union of India decision.To
prevent “evergreening” and promote her domestic generic industry, in an
abundance of caution India has introduced an additional test that disqualifies
all incremental pharmaceutical innovations from being considered an “invention”
unless they have increased “therapeutic efficacy.”The strict and narrow test has crucial
effects on the socio-economic interests of the country.This paper is an evaluation of the
effects of the Novartis judgment on
the different players in the economy and how the law should be interpreted to
balance everyone’s competing interests.

A.Types of innovations

Innovation can be classified into three categories:
revolutionary, radical, and incremental.Revolutionary innovations are conceptual advances, such as new
scientific theories or principles, which form the basis for subsequent
research.[1]For example, a new biological or
metabolic pathway can be considered revolutionary. Radical innovations are
products that put these conceptual advances into practice and set the standard
for utilizing an underlying principle. For example, a “first-in-class” medicine
(the first medicine of its type) is normally considered a radical product.

Incremental innovation is marked by improvements in radical
products. For example, in pharmaceuticals, incremental innovation includes
improvements in therapeutic quality, safety, and efficacy over existing
medicines.[2]Incremental innovation advances
medicines by expanding therapeutic classes, increasing the number of available
dosing options, discovering new physiological interactions of known medicines,
and improving other properties of existing medicines. Incremental innovation
can include reformulating a medicine to encourage children’s compliance with
treatment regimens or increasing a medicine’s shelf-life and heat-stability to
ensure that the medicine is effective in diverse environments (Rephrase last two sentences).

A study conducted in 2007 found that nearly 60% of the
medicines enlisted in the WHO Essential Drug List reflect incremental
improvements of older drugs.[3]
In India alone, the National Knowledge Commission reported in 2007 that while
37.3% Indian companies had introduced breakthrough innovations in the recent
years, no fewer than 76.4% had introduced incremental innovations.[4]

There are many reasons for companies to invest in
incremental innovations. First, some argue that obtaining patents for
incremental innovations, which are mostly trivial, is merely a strategy to
delay generic market entry and prevent other firms from entering the market at
lower prices.However, this loses
sight of the fact that once the patent exclusivity period of a medicine
expires, any firm may produce and market that medicine irrespective of patents
being granted on subsequent incremental innovations.The demand of the improved drug will
obviously be decided by patient needs, affordability (other factors?), however,
generics are not entirely barred from entering the market.

Second, commercialization of incremental pharmaceutical
innovations can generate enough revenues to assist pharmaceutical companies
fund the high cost and mitigate the risks of new drug development.For example, between 1995 and 2000,
drugs based on incremental innovations accounted for approximately US$17B of
new retail prescription drug spending in the US (or 38% of all new spending in
the retail prescription drug market).

B.Patent Law in India

Pursuant
to the Patents Act 1970, India did not grant patents for pharmaceuticals to
ensure widespread access to medicines and food, at the lowest prices, and to
promote the development of the local industry in the chemical and
pharmaceutical sector.[5]Thus, the patent applications filed
by foreign entities decreased from 4248 in 1968 to 1010 in 1979.It also resulted in the rise of generic
drug manufacturing industry and a reduction in drug prices in India. However, the
level of domestic R&D investments did not rise.

Consequently,
when India was required to comply with the TRIPS Agreement to become a member
of the WTO, the Amendment of 2002 was adopted, which introduced several changes
to the Patents Act, re-casting the meaning of “invention” as “a new product or
process involving an inventive step and capable of industrial application,” and
“inventive step” as “a feature that makes the invention not obvious to a person
skilled in the art.”[6]

Along
with these changes, the Amendment Act of 2005 was introduced in an attempt to
conform with the other requirements of TRIPS.The Amendment Act of 2005 allowed the
grant of product patents for pharmaceutical substances for the first time after
1970.Additionally, it
re-defined the concept of “inventive step” to be a “feature of an invention
that involves technical advance as compared to the existing knowledge or having
economic significance or both and that makes the invention not obvious to a
person skilled in the art.” And lastly, it radically modified §3d, which read
as follows:

The
following are not inventions within the meaning of this Act,

(d)
the mere discovery of a new form of a known substance which does not result in
the enhancement of the known efficacy of that substance or the mere discovery
of any new property or new use for a known substance or of the mere use of a
known process, machine or apparatus unless such known process results in a new
product or employs at least one new reactant . . .

Explanation

For
the purposes of this clause, salts, esters, ethers, polymorphs, metabolites,
pure form, particle size, isomers, mixtures of isomers, complexes, combinations
and other derivatives of known substance shall be considered to be the same
substance, unless they differ significantly in properties with regard to
efficacy’.

This test introduced
the concept of “enhanced efficacy” as a test for patentability of incremental
innovations.

These
changes raised significant concerns for the different players – generic
companies, big pharmas and the patients – and provided a clash between
patent protection on the one hand and universal access to food and drugs on the
other.

C.India’s §3d provision

As
expected as a result of the introduction of §3d, many pharmaceutical companies
that were able to obtain patents in other parts of the world faced problems
obtaining patents in India.One of
these was Novartis, which ultimately, brought a constitutional challenge to the
§3d test in the Indian courts.

1.Patent
for Gleevec’s active ingredient in US

On
28 May 1996, a patent was granted to the researchers from Novartis patent for
their innovative product, derivates of N-phenyl-2-pyrimidine-amine, including
Imatinib, and its use in the treatment of several forms of tumor (the
“Zimmerman” patent).In 2001, the
drug,Gleevec, with its active
ingredient as imatinib, was launched.It helped treat pateients with chronic myeloid leukemia, a cancer that
affects between 5000 and 8000 patents each year, in USA alone.

Gleevec
proved to be a blockbuster drug even though its price raised considerable
criticism- rising from US$30,000/yr in 2001 to US$92,000/yr in 2012 – and
put it out of reach of many patients.Thereafter, Novartis filed a separate patent application for the active
ingredient of Gleevec in USA. The patent was granted on May 17, 2005.

2.The
controversy in INDIA

On
17 July 1998, Novartis filed a patent on an incremental innovation of the drug
Gleevec - Imatinib mesylate in beta crystalline form.This application claimed that the beta
crystalline form had better flow properties, higher thermodynamic stability,
and lower hygroscopicity than the alpha crystalline form. Initially, the
application did not provide a comparison of the beta crystalline form with
Imatinib in free base form or Imatinib mesylate, but later, in four affidavits,
Novartis alleged that beta crystalline form had higher bioavailability than
imatinib in free base form.However, the application was rejected by the Assistant Controller of
Patents and Design in India, on the basis that the invention (i) was
anticipated by the Zimmerman patent (ii) was obvious to a person skilled in the
art and (iii) was non-patentable under §3d.

Novartis
challenged this decision in the Madras High Court which transferred the claim
to the Intellectual Property Appeal Board (IPAB)

The
IPAB reversed the findings of the Assistant Controller on anticipation and
obviousness, but upheld that beta-crystalline form was non-patentable under
§3d.It clarified that §3d was a
higher threshold for patentability of incremental innovations and patent law
was aimed at providing more affordable life-saving drugs to Indian citizens.

Finally,
Novartis challenged the IPAB’s Order before the Supreme Court.The Court heard the case on two main
issues

(1)Does Imatinib Mesylate qualify as an
invention under §2(1)(j) and (ja) of the Patents Act, and

(2)Is the beta crystalline form patentable
in light of §3d?

First,
the Court did a detailed description of the development of patent law in India
and its consequences on the economy of India- market share effects (in short).

On
the merits, the court concluded that the Zimmerman patent covered not only
imatinib but also imatinib mesylate.Thus, imatnib mesylate did not qualify as an “invention” within the
meaning of §2(1)j and ja.

With
regard to the beta crystalline form, the court turned to §3d. As Imatinib
mesyalte was a “known substance” with a“known efficacy” as demonstrated by the clinic studies conducted by
Novartis before the regulatory approval of GLeevec, the beta crystalline form
was thus, a “new form” of a “known substance,” which required compliance with
§3d.The court held that the
meaning of “the test of efficacy in the context of §3d [depends] upon the
result the product under consideration is desired or intended to produce”.[7]
For pharmaceutical drugs, “the test of efficacy can only be therapeutic
efficacy.”

In
line with the Explanation inserted in
the Amendment Act of 2005, which states that the substance to be patented shall
“differ significantly in properties with regard to efficacy,” the judges added
that §3d required a strict and narrow interpretation of the “enhanced efficacy”
of a substance.

According
to the Court, the properties claimed by Novartis to be better in beta
crystalline form – improvement in bioavailability, more beneficial flow
properties and better processability, more stability and less hygroscopicity-
did not meet the threshold of “enhanced efficacy”.What is required for an invention to
qualify as a patentable incremental innovation was “therapeutic efficacy,”
which was not present for the beta crystalline form.Thus, the Supreme Court found that
the beta crystalline form failed §3d and effectively, set a higher threshold
for incremental innovation.

3.The
Indian Supreme Court decision

There
are many underlying factors that went into the Novartis decision.

The
first factor was to uphold the intent of the legislature in introducing §3d
– prevent evergreening. Although
there is no scientific definition of evergreening, it is a patenting strategy
“consisting of acquiring patents on minor, often trivial, modifications of
existing pharmaceutical products or processes in order to indirectly extend the
period of patent protection over previously patented compounds.”[8]Thus, it is an improper extension in
patent monopoly, which does not convert to a significant benefit for the
patient.[9]Allegedly, this is what Novartis
was attempting to do by filing for the beta crystalline form of imatinib
mesylate.

The
Madras High Court mentioned in its interpretation that §3d was introduced to
“prevent evergreening; to provide easy access to the citizens of this country
to life saving drugs and to discharge their Constitutional obligation of
providing good health care to its citizens.[10]”Essentially, it attempts to only grant
patents for truly meritorious patents.

Another
factor that could have swayed the judges was probably that Novartis had
recouped its R&D costs for the Gleevec drug in a very short period of time.[11]
For example, in 2012,Novartis earned more than US $4B from sales of Gleevec
– a sum several times higher than its initial research investments.Thus, Novartis had recovered its
research expenses well before the expiry of the patent term. Hence, a question for the judges was whether
Novartis deserved further reward for its innovation.

D.Other countries’ approach to prevent
evergreening

As
compared to India, jurisdictions across the world prevent evergreening through
other mechanisms.Mostly, they do
not have a distinct and separate test for incremental innovations.For example, in the US, it is built into
the statutory requirements of anticipation (§102) and obviousness (§103).The US adopts technologically specific
applications of the general patentability standards to include the §3d test as
a species of the “obviousness” test.Courts have found that structural similarities between a pharmaceutical
substance that is sought to be patented and an earlier known substance trigger
off a presumption of prima facie obviousness.[12]This presumption can be rebutted if the
patent applicant demonstrates that the invention exhibits “unexpected or
surprising results”.[13]

Therapeutic
advantages are given relatively more weight while assessing non-obviousness as
compared to physical properties such as processability or improved stability.[14]

Other
mechanisms that indirectly prevent evergreening are the principles of inherent
anticipation, patent misuse and double patenting.Elaborate

E.Effect of the Novartis judgment

The
intended result of the Novartis decision
is to allow inexpensive generic version of a patented product to enter the
market and reduce drug prices making them more accessible to Indian patients.

Also,
§3d of India is codifying the case law of US and providing better guidance in
the form of a short cut to the patent office and patentees for guidelines to
grant patents for incremental pharmaceutical innovations.[15]

However,
there are two big risks that are associated with this decision by the SC.
First, whether the threshold has been set too high by this narrow and strict
interpretation of §3d, preventing the patentability of incremental innovation
that in the field of pharmaceuticals may still yield beneficial effects for the
patients.

And second, the
underlying policy considerations made by the judges may undermine the coherency
of Indian Patent Law.

a.How
do incremental innovations benefit the economy and society?

Advocates
of incremental innovation are worried that the Novartis decision will harm India more than benefit her.They argue that it will hinder medical
progress and discourage future innovation.

They
argue that there is substantial clinical value of incremental pharmaceutical
innovation.It leads to increased
effectiveness that is mostly a result of advances in dose delivery systems and dosage
forms, such as transdermal delivery and extended release formulations, which
increases the rate of absorption and reduces toxicity and side-effects.
Breakthrough drugs normally have side-effects which get cured by more effective
incrementally improved versions.Also, as drugs enter new markets with different environments, such as a
more hot and humid climate in India, they are improved so that they can be more
stable.

Incremental
innovations also have several positive impacts on society and economy,
including reduction of healthcare and other social and economic costs.First, they increase the number of
different drugs in a specific class, thereby increasing the price competition
among those drugs and ultimately resulting in price reduction.[16]Hence, the drugs become more accessible
to patients.Second, the
incremental advances reduce overall treatment costs by increasing drug
biolavailability, reducing dosage frequency, increasing patient compliance by
reducing side-effects and toxicity, which in turn reduces costs of extended
treatment schedules.[17]Better treatment regimens would also
result in the need for fewer hospital stays and physician visits.

Incremental
innovation is also beneficial for the economy because due to its more effective
treatment regimes, it reduces employee absenteeism and mitigates the impact of
illness on labor productivity.[18]It also benefits the generic industry as
it makes a greater range of products available for generic marketing once
applicable patent protection expires.Further, it increases revenue for the pharmaceutical companies, which
can be used to support expensive R&D of blockbuster drugs.[19]

Effects
of allowing incremental innovations without limitations, such as a “therapeutic
efficacy” test, are easily discernible from economies such as China, Japan and
Italy.For example, in China, from
1985 to 2003, over half of the total patent applications were made by domestic
applicants.Most of these were
deemed to be incremental and presented a wide section of innovation that was
previously untapped.Similarly,
Japan and Italy allow pharmaceutical product patents and have benefited
significantly through higher investment in pharmaceutical R&D and higher
employment in the sector.[20]

Even
with these easily detectable benefits throughout the world that result from allowing
patents for incremental pharmaceutical innovations, the Novartis judgment shows that presently India thinks
differently.She is primarily
concerned about her domestic generic industry and poor patients.However, it is easily predictable that
this will discourage Indian and foreign investors from investing in India and
also from making new formulations or drug delivery systems that are more suited
to Indian climate.Thus, overall,
it seems that the judges made a judgment call in which the country’s social
interests outweighed the current economic needs.

b.Incoherency
in Indian Law due to the Novartis
decision

F.CONCLUSION: How should the law change to
balance all interests?

To
balance the competing interests of generic companies and patients against drug
originators, §3d should be redefined.There are various options for this.

First,
§3d can be redefined to include “safety and/or efficacy” as in the EU directive
_________ from which §3d was borrowed originally.[21]However, Prof. Basheer correctly points
out that the EU directive is for the drug regulatory process that views “safety”
and “efficacy” distinctly, whereas the patenting process does not require such
a distinction to be made.Elaborate.

Second,
there are two ways of applying the §3d test.It can either be treated as separate and
distinct from traditional patentability criteria, such as novelty, inventive
step and utility or it can be considered a species of the general “inventive step”
or “non-obviousness’’ test.

The
former approach is easier as it first requires the assessment if the alleged
invention qualifies as “inventive” under §2(j) and (ja) and then separately, requires
the assessment if §3d test is satisfied. Consequently, an invention can be found
to be “inventive” but at the same time not be granted a patent as it fails §3d.However, Prof. Basheer correctly points
out that this violates the TRIPS mandate that states “patents shall be
available for all inventions.”[22]

However,
this will be solved through the latter approach, i.e. if the law disqualifies
the inventions covered by §3d from the class of “inventions” all together by
including the test for §3d in the “inventive step” test.Thus, in essence, §3d can work as a
negative or exclusionary definition of “invention”, just like mental processes
and laws of natures do in the US (and also, in India).This would provide a simpler framework
for the judges also that is in conformity with the rest of the world.

Effect of this on economy, if
any?Will clearer
and more uniform standards give more surety to multinational drugs companies
and attract them to the country?

Another
approach that will address the concern of evergreening for the country without
a separate test and still allow it to conform with the rest of the world is if India
simply considers such products within the framework of the policy exclusion
definition as mentioned in §3(b), which excludes from patentability “an invention
the primary or intended use or commercial exploitation of which could be contrary to public order or morality or
which causes serious prejudice to human, animal or plant life or health or to
the environment.” These products
can also be included in another definition, § 3(i), which …...

With
regard to §3b, it can be argued that as Gleevec was being sold at an excessive
price of Rs 1,20,000/month to poor cancer patients in India (where the avg.
monthly income is ____/month), it would create public disorder and thus, §3(b)
could be met.However, if excessive
drug pricing is held to be a sufficient reason to not grant a patent for a drug
that appropriately deserves such protection, the entire institution of patent
protection that grants a monopoly for the costs spent on R&D will be
threatened.Thus, excessive drug
pricing cannot be found to make a substance ineligible for a patent under
§3b.Other mechanisms such as
compulsory licensing or price control can be used to address excessive drug
pricing but penalizing by not granting a patent is not appropriate.It also defies TRIPS, which requires
patents to be granted for all inventions.

Thus,
to still comply with TRIPS, India can argue that § 3d is a policy-based
exclusion itself, i.e. it should be treated separately from “inventive” step
test (as proposed above) and is an exclusion based on policy reasons which Member
States are allowed to do under TRIPS[23].However, this would subject India to a
TRIPS challenge as it begs the question - what is the extent of these
exceptions from the term “invention” for the Member States?

Along
with using §3d as a species of the “inventive” step test, another way of
assuring that the benefits of patents on incremental pharmaceutical innovations
are properly reaped by all is to broaden the definition of §3d such that it
includes more properties of incremental innovations to be worthy of an
“invention,” but with varying levels of weight put on the properties depending
on the specific drug.Even though
this would not provide an objective criteria to the patent office, it will
bring India in conformation with the rest of the world.For example, like the US, the §3d test
can value therapeutic efficacy more than processability or storability and assess
this on a case-by-case basis.This
way mutinationals that obtain the patents in other jurisdictions will have
better direction of what is going to happen in India and will be more willing
to enter the market.

Additionally, India will be able to reap
the benefits of incremental innovations more effectively by not barring
deserving drugs that provide drastically better stability or processability and
indirectly would bring down the prices due to these properties.Hence, the drugs would continue to be
affordable for patients and generics can still invest in a plethora of options
to continue their businesses and further bring down the prices.

[15] But it has to be borne in mind that it
is only a species of the “inventive” step test and not the entire genus,
because it is possible that a substance has therapeutic efficacy but was
“obvious to try”, in which case it does not merit a patent. This means that
after applying the short cut, the usual “inventive” step test still needs to be
applied